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Last week, the CEO of Nvidia negotiated a deal with President Trump to get the licenses his company needs to export its chips to China. To bypass export controls, Nvidia and fellow chipmaker AMD will give a 15% cut of sales to the United States government.
This is a bizarre deal—it’s some kind of reverse tariff, taxing the exports of a leading company in one of our most critical industries—but it’s also the latest in a pattern: the administration uses the authority of the federal government as leverage to get what the President wants, including both concessions and control.
This is a terrible practice that undermines both the American economy and the rule of law.
First, the administration is sucking resources out of a critical field of innovation. Nvidia and AMD are huge, successful companies, and the public—including, perhaps, the President—think of them as enormous reservoirs of money. What’s the harm in skimming some off?
But technology companies become successful through not only the brilliance of their engineers but the shrewdness of their CFOs. That 15% is money that’s not going back into further research and product development, and it’s not going toward hiring more people. Nvidia and AMD can eat the costs or raise prices, or both, and in every case they’ll be less competitive.
Jim Watson / AFP via Getty Images file
The second problem: the administration is training the world to see every act of government as a negotiation. The law should be principled, predictable, and fair; that’s what the rule of law is. But in this administration, the law is just the opening bid. If this 15% were a tax, we could have had a public debate about it, and it would apply fairly to everyone. Instead, it was a deal. The winners in that kind of system are the wealthy and powerful, who have the money and influence to negotiate.
The third problem is that we are reorienting our economy toward flattery. Great products at competitive prices should win, but that’s not always the case as businesses adapt to the environment. At the Justice Department, I helped find the right software to help with a major case. A startup had a great option, but ultimately we went with another that was expensive, difficult to use, and ineffective. The reason: we couldn’t wait for the startup to learn the procurement process, and the product we chose was made by an experienced federal contractor. What counted wasn’t a better product or a better price but bureaucratic proficiency.
That’s why I worry about an economy where flattering the administration or doing its bidding is what wins. Years from now, I expect that when Tim Cook looks back on his life, he will not remember the moment he gave the President a trophy in the Oval Office as among his proudest. But, he understands the game now, as do the leaders of universities, law firms, and other companies. Aside from embarrassing spectacle, it means in the near term that all of those organizations will make decisions that may not be best for their missions, but that will get them in the good graces of the President. In the long term, it means that the companies that are best at doing that will become dominant. We will all pay the price for that.
Instead of fair competition, the President is substituting personal deals. That weakens innovation, corrupts the rule of law, and rewards sycophancy. If we want a New American Century, we need every ounce of American creativity and ingenuity pointed in the direction of progress and growth, not wasted on haggling with the President.
We can’t afford to skim 15% off our future.
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Long-form essays, short notes, and the occasional dispatch from the open questions NAC is pursuing.